We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Eni SpA (NYSE:E).
Hedge fund interest in Eni SpA (NYSE:E) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Marsh & McLennan Companies, Inc. (NYSE:MMC), Applied Materials, Inc. (NASDAQ:AMAT), and Schlumberger Limited. (NYSE:SLB) to gather more data points. Our calculations also showed that E isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the recent hedge fund action regarding Eni SpA (NYSE:E).
What does smart money think about Eni SpA (NYSE:E)?
Heading into the first quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in E a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Eni SpA (NYSE:E) was held by Fisher Asset Management, which reported holding $42.7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $1.4 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Paloma Partners. In terms of the portfolio weights assigned to each position Fisher Asset Management allocated the biggest weight to Eni SpA (NYSE:E), around 0.04% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to E.
Due to the fact that Eni SpA (NYSE:E) has experienced bearish sentiment from the smart money, we can see that there exists a select few funds that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Jeffrey Talpins’s Element Capital Management said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $0.3 million in stock, and Ran Pang’s Quantamental Technologies was right behind this move, as the fund sold off about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Eni SpA (NYSE:E) but similarly valued. We will take a look at Marsh & McLennan Companies, Inc. (NYSE:MMC), Applied Materials, Inc. (NASDAQ:AMAT), Schlumberger Limited. (NYSE:SLB), and Ecolab Inc. (NYSE:ECL). This group of stocks’ market valuations match E’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MMC | 31 | 649419 | 3 |
| AMAT | 72 | 3452552 | 17 |
| SLB | 47 | 1207839 | -6 |
| ECL | 44 | 2301979 | 2 |
| Average | 48.5 | 1902947 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.5 hedge funds with bullish positions and the average amount invested in these stocks was $1903 million. That figure was $45 million in E’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Eni SpA (NYSE:E) is even less popular than MMC. Hedge funds dodged a bullet by taking a bearish stance towards E. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately E wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); E investors were disappointed as the stock returned -42.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
